Religare recommends 'hold' on Maruti Suzuki

MARUTI SUZUKI

RESEARCH: RELIGARE

RATING: HOLD

CMP: RS 1280

Maruti Suzuki’s (MSIL) Q4FY10 results were marginally below expectations largely on account of higher advertising expenses incurred during the Auto Expo that was held in January ‘10. Since these costs are one-off in nature, the results do not warrant any downgrade in earning estimates for FY11. Currently, MSIL is trading at 14x FY11E earnings. We maintain `Hold’ on the stock. With net revenues up 31% y-o-y : MSIL’s net revenues for the quarter grew 31% y-o-y to Rs 8,420 crore, driven by a 21.5% increase in volumes and 7.5% higher realisations. On a q-o-q basis, the revenues increased 12% on better volumes. EBITDA margin is below expectations. MSIL’s EBITDA margin stood at 13.2% (up 430 bps y-o-y ; down 190 bps q-o-q ), lower than our and Street’s expectations. The below expectation margins came in largely from higher advertising expenses incurred during the Auto Expo and marginally higher employee costs. Net profit doubles y-o-y to Rs 660 crore: Though MSIL’s net profit doubled to Rs 660 crore during the quarter, it stood 7% below our estimate due to lower margins and higher depreciation costs. MSIL is currently trading at 14x FY11E EPS and 12.6x FY12E EPS. Despite the below-expectation results, we maintain our `Hold’ recommendation on the stock and our earnings estimates for FY11 since the spurt in advertising costs is one-time in nature. The proportion of advertising expenses is likely to normalise in the coming quarters.